Introduction

In this case the issue was whether the provision of birthday parties by a creche (which also ran a cafe)  involved a single  taxable supply of a birthday party, or the separate supply of food (taxable) and children’s play (exempt). The decision provides a helpful outline of the way in which the UK Tribunal looks at the single/multiple supply issue and the approach to the characterisation of transactions.

Facts

The taxpayer operated a creche and cafe which provided both eat in and cold takeaway supplies.

The play area was a completely segregated area, and was available only to children and staff of the taxpayer. Outside of creche hours, the play area was available for public use. Access to the play area was offered on a pre-booked or unplanned basis in slots of 30 minutes. This type of access was separated into parties which involved catering and separate play sessions for groups (referred to as ‘group play’) which involved no catering.

The party was sold as a package with a play element, a hot or cold “food option” and a party bag. The evidence was that the whole cost of a party was run through the till located in the creche area (there was a separate till in the cafe area) – the cost of the food supply and party bag was then separately run through the cafe till as a single payment. In the accounts the income for the parties (including group play) was posted as a single figure.

The taxpayer treated the supplies in respect of parties as separate supplies of food and party bags (standard rated) and childen’s play (exempt). The Revenue contended that the supply was a single standard rated supply of a birthday party.

The Contentions

It is instructive to consider the submissions made by the Revenue, which were as follows:

• domestic legislation does not provide a definition of a single supply, a multiple supply or a composite supply for VAT supplies and that, as a consequence, one must have regard to the three leading cases in this area for the determination of the issue in this appeal, ie. whether there is a single or multiple supply for the proper assessment of VAT. Those leading cases were as follows:
  • Card Protection Plan Limited v Custom and Excise Commissioners [1999] STC270 (“CPP”)
  • College of Estate Management v Custom and Excise Commissioners [2005] 1597 HL (“CEM”)
  • Levob Verzekeringen BV and Another v Staatssecretaris Van Financiën (C-41/04) [2007] (ECJ) (“Levob”)
• As regards CPP, HMRC are of the view that the ECJ in that case made the distinction between a service which could be regarded as a principal service, and one which could be regarded as ancillary to that principal service, but more relevantly that a transaction which comprises a single supply from an economic point of view should not be artificially split so as to distort the functioning of the VAT system.  They say that the Appellant’s argument for such a “split” is “artificial”.
• As regards the question of payment, HMRC accepts that whilst “….. a single price … is not decisive ……” suggests (as per CPP) that “if the service provided to customers consists of several elements or more for a single price, the single price may suggest that there is a single service” (CPP at paragraph 31).
• On the question of what is a single supply, we were also referred to the House of Lords decision in CEM, where the House of Lords in considering whether the supply by a College of printed matter to its students undertaking distance learning was ancillary to the exempt supply of education, the House of Lords held that “it was necessary to look for the essential purpose (objectively assessed) of a transaction and to look at the commercial reality.  A supply which comprised a single service from an economic point of view should not be artificially split” (CEM at paragraph 1).
• From the case of Levob, HMRC distilled the proposition that “distinct supplies may exist where a single invoice is made out.  Conversely ….. a comprehensive supply is not ruled out because separate prices are shown and separate invoices made out for individual elements” (Levob at paragraph 75).
• in all cases that the objective view of the consumer should be preferred (as opposed to the subjective perspective of the provider)

The taxpayer contended that whilst the birthday parties are advertised as an integral offering, parents are free to make up their own minds about what they want, ie. whether to buy just one element or to purchase all of the elements and that, therefore, the elements are “economically dissociable” and on that basis ought to be treated as separate supplies.

The Tribunal’s approach to the test

Having regard to the case law, the Tribunal considered that the “test” to be applied has the following elements:

• firstly, it is an objective assessment based on the commercial realities;
• secondly, that the assessment should be applied to what customers actually thought they were purchasing;
• thirdly, that the assessment is predominately an economic one;
• fourthly, one then has to “stress test” those considerations against issues such as whether one particular supply dominates over another more ancillary supply or if a supply is integral to another as distinct from those that are independent of one another before one is able to categorise the correct VAT treatment.

Further, the Courts are not going to engage in the artificial dissection of services which are objectively considered to be “composite” but that the Courts are willing to look at cases, and particular factual circumstances, to assess whether or not the services provided ought to be treated as separate supplies.

The application of the test to the facts

The Tribunal considered that the “birthday party offering” encompassed the following possible elements:

• a birthday party invitation
• the advantage of pre-booking – both for play and for catering
•  the reservation of a specific area within the café which could be utilised after the play session had been concluded
• a more limited menu (than that which was on offer in the café generally) but with the benefit of either a cold or hot option for food, all of which was at a discount to menu list prices
• a party bag or a treat

The Tribunal observed that parents would have expected the taxpayer, for a fixed price, to provide each of these elements and concluded that, from the perspective of the customer, what was supplied was a group of facilities for a children’s party, provided as a single supply. The Tribunal did not accept the taxpayer’s contention that any one element was more dominant than the other, nor that the elements were independent aims in their own right. As the Tribunal concluded:

Standing back from the transaction and looking at it from an economic point of view, objectively what was being bought and sold was a composite supply.